India’s Rupee Falls From 1-Week High as Importers Bought Dollars

India’s rupee ended little changed, after rising to a one-week high, on speculation oil importers sought dollars to benefit from the exchange rate.

State Bank of India probably purchased the greenback for the companies, according to two traders with knowledge of the matter, asking not to be named as the information isn’t public. The rupee rose earlier today after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy will continue to need stimulus, boosting the prospect of the flow of funds to emerging markets. The rupee’s gains will be limited by the nation’s current-account deficit, according to Morgan Stanley.

“We expect currencies with weak external positions to continue underperforming,” Morgan Stanley analysts including London-based Rashique Rahman, wrote in a research report today. Price action in markets including India’s suggest “still strong demand for the dollar,” they wrote.

The rupee was little changed from yesterday at 59.6800 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The currency touched 59.3200 earlier, its strongest since July 2. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell 18 basis points, or 0.18 percentage point, to 12.74 percent.

Record Low

The rupee has rebounded 2.6 percent from a record low of 61.2125 per dollar touched on July 8, as Indian regulators curbed speculation in rupee derivatives. Global funds have cut holdings of local debt by $8.1 billion since May 22, when the Fed signaled it may reduce asset purchases this year. The Bloomberg Dollar Index, which tracks the greenback against 10 major trading partners, fell for a second day.

“Bernanke’s comments have led to a dollar slump and risk-on rally in the market,” said Samir Lodha, Mumbai-based senior partner at QuantArt Market Solutions Pvt. “The rupee should stabilize at current levels for now and may strengthen to about 58 or 57 if investors receive more signals that the U.S. stance will be accommodative.”

The Reserve Bank of India barred lenders from proprietary trading in currency futures and exchange-traded options, according to a July 8 statement on its website. The Securities and Exchange Board of India said separately it will raise margin requirements and cap open positions in such contracts.

The RBI also asked Indian oil refiners, the largest buyers of foreign currency, to purchase dollars only from the State Bank of India, the nation’s biggest lender, CNBC-TV18 television channel reported July 9, citing people it didn’t identify.

Three-month onshore rupee forwards rose 0.4 percent to 60.73 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts gained 0.3 percent to 60.86. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

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